Tax & Compliance for Departments
The Tax Department provides guidance to University departments on key tax-related responsibilities to ensure compliance with federal and state regulations, including Sales and Use Tax guidelines, determining worker classification, Unrelated Business Income Tax (UBIT) considerations, and the proper handling of scholarships, fellowships, grants, student gifts, awards, and prizes. Departments should review these resources when planning transactions or engaging vendors and individuals to ensure appropriate tax treatment and adherence to University policy.
New Jersey imposes a 6.625% sales and use tax on retail sales of tangible personal property and certain services under the New Jersey Sales and Use Tax Act. Most services related to tangible personal property are taxable unless specifically exempted by law.
Stockton University is generally exempt from New Jersey sales and use tax pursuant to N.J.S.A. 54:32B-9, which provides exemptions for qualifying organizations.
Tax-Exempt University Purchases
The Stockton University New Jersey Sales Tax Exemption Letter is issued by the State of New Jersey and may be used by authorized personnel to exempt eligible University purchases from sales and use tax with any vendor. ST-5 or other sales tax forms are not required.
University departments should use sales tax exemption certificates whenever possible when purchasing services or tangible personal property for official University purposes. To qualify for exemption from sales tax:
- The purchase must be for official University business; and
- Payment must be made with University funds by a Stockton University employee (e.g., University P-Card or Stockton University check).
Purchases made using a personal credit card do not qualify for sales tax exemption in New Jersey.
Stockton University currently holds sales tax exemptions in the following jurisdictions:
- New Jersey Exemption Letter — No expiration
- Connecticut Tax Exempt Certificate — Renewed annually
- Florida Tax Exempt Certificate — Valid through 2030
- Massachusetts Tax Exempt Certificate — Valid through 2033
The ST-4 Exempt Use Certificate is a New Jersey tax document used by purchasers to certify that goods or services acquired are exempt from sales and use tax. Please use the blank form and complete it with the vendor’s name.
State Occupancy Fee and Municipal Occupancy Tax
In addition to sales tax on hotel/motel room rentals, New Jersey imposes a State Occupancy Fee and Municipal Occupancy Tax. State instrumentalities, including Stockton University, are exempt from these charges.
The same exemption letter used for New Jersey sales and use tax exemption may also be used to exempt the University from the New Jersey State Occupancy Fee and Municipal Occupancy Tax.
Vendor Specific Tax Exempt Certificates and Instructions
Stockton University has received tax-exempt certificates and program instructions from certain vendors. Please contact the Tax Office if you need assistance obtaining a tax exemption certificate or setting up a tax-exempt account with a vendor.
Prior to engaging the services of any individual as an independent contractor, the hiring department must complete the Independent Contractor Determination Checklist (ICDC). The completed ICDC must be submitted to the Tax Office at tax@stockton.edu for review and approval. The approved form should be included with all requisition and/or contract submissions to Procurement.
If the payment is for an honorarium, please complete IRS Form W-9. If the individual is a foreign visitor, please complete IRS Form W-8 BEN.
The penalties for incorrectly classifying workers as independent contractors can be significant. If a worker who was treated and paid as an independent contractor is later reclassified by the IRS as an employee, the University may be liable for federal income tax withholding that should have been withheld, as well as both the employer and employee portions of FICA taxes associated with the compensation paid. Additional penalties and interest may also apply.
The IRS uses three categories of evidence to determine the relationship between businesses and workers:
- Behavioral Control – Refers to facts that show whether the business has the right to direct or control how the work is performed, including through instructions, training, or other methods.
- Financial Control – Refers to facts that show whether the business has the right to direct or control the financial and business aspects of the worker’s job.
- Type of Relationship – Refers to facts that demonstrate how the worker and the business perceive their relationship, including contracts, benefits, permanency, and the nature of the services provided.
Full-time salaried employees of the University who are asked to provide services or consulting for other University departments are generally not entitled to additional compensation when those duties fall within their area of professional expertise. This applies even when the work is performed outside normal business hours or during the employee’s personal time. Such assignments are considered part of the employee’s regular responsibilities for which they are already compensated.
Students receiving compensation from the University must be paid through the University payroll process.
Stockton University must comply with federal and state tax regulations when providing scholarships, fellowships, grants, gifts, awards, prizes, stipends, or similar payments to students and other individuals.
The information below outlines the University’s requirements for processing these payments and the related tax reporting obligations.
Will you be hosting an event, meeting, program, contest, or competition where prizes or awards will be distributed?
Before advertising, purchasing, or distributing prizes, awards, or gift cards, departments should review the guidelines below and understand the related tax reporting requirements.
The value of prizes and awards distributed through drawings, contests, competitions, raffles, or University programs is considered taxable income to the recipient and may need to be reported to the Internal Revenue Service (IRS).
Gift Cards
Gift cards may be purchased for University business purposes; however, they are generally discouraged because they are considered taxable income starting with the first dollar issued.
Cash and gift cards provided to University employees, TES employees, or student workers must be reported through Payroll for inclusion in taxable earnings.
The maximum value of an individual gift card may not exceed $150.
Tax Reporting Requirements
U.S. Citizens and Resident Aliens for U.S. Tax Purposes
Prizes and awards may be reportable to the IRS on Form 1099-MISC, Miscellaneous Information.
Important:
If an award is related to employment, job performance, or services provided to the
University, the payment must be processed through Payroll and reported as taxable
wages.
Non-U.S. Citizens
Prizes and awards issued to non-U.S. citizens may be subject to additional tax withholding and reporting requirements. In certain cases, federal tax withholding of up to 30% may apply before the prize can be released.
Please contact the Tax Department before awarding any prize, award, or gift card to a non-U.S. citizen.
Required Actions
Departments issuing prizes, awards, gifts, or gift cards must follow the steps below:
- The recipient must personally pick up the prize/award/gift and present a valid Stockton University ID (if applicable).
- The recipient must complete and sign the Prize, Award, and Gift Receipt Form at the time of pickup.
- Departments must submit the completed Prize, Award, and Gift Receipt Form to the Tax Department within five (5) business days of distribution.
- If the recipient is not affiliated with Stockton University, a completed Form W-9 must also be obtained and submitted to the Tax Department.
Important Notice
Failure to follow these processes may result in the individual who purchased the gift card on behalf of the department or organization being identified as the recipient of the gift card for tax reporting purposes. Any resulting taxable income reported to the IRS may become the responsibility of that individual.
Definitions
Prize
Something of value awarded by chance, generally for promotional purposes, to one or
more participants in a University-sponsored event.
Award
Recognition or something of value given based on competition, merit, achievement,
or service to the University.
Gift
A voluntary transfer of something of value given as a gesture of goodwill or appreciation.
De Minimis
A non-cash gift, award, or prize that is so small in value that accounting for it
would beunreasonable or administratively impractical. To qualify as de minimis, the value
of the non-cash item must not exceed $100.
Internal Revenue Service (IRS) Guidelines
- Cash and cash-equivalent items (including gift cards) provided to any University employee, TES employee, or student employee are considered supplemental wages and are taxable regardless of the amount. These payments must be processed through Payroll to ensure proper tax reporting and withholding.
- Cash and cash-equivalent gifts, prizes, or awards provided to students or non-employees may be reportable to the IRS. The University is required to issue appropriate tax reporting forms when payments to an individual meet applicable IRS reporting thresholds. Departments issuing these payments are responsible for notifying Accounts Payable for tax reporting purposes.
- Non-cash gifts, prizes, or awards may qualify as de minimis if the value does not
exceed $100. Qualified de minimis non-cash items are generally not included in the
recipient’s taxable income.
Best Practices
- Avoid providing cash or cash-equivalent prizes and awards whenever possible, as these items are taxable from the first dollar issued.
- Limit the value of non-cash prizes, awards, and gifts to less than $100 whenever practical.
- Maintain appropriate documentation supporting the business purpose, recipient, and value of all gifts, awards, and prizes.
- When in doubt regarding the taxability or appropriateness of a gift, award, or prize, contact the Tax Department at Tax@stockton.edu before issuing the item.
Student payments must be carefully reviewed to determine the appropriate payment method and related tax reporting requirements. Payments to students generally fall into one of the following categories: scholarships, compensation, or reimbursement of University business expenses.
Please use the Stipend vs. Wages Determination Form to assist in determining the appropriate payment method and tax treatment for student payments.
Federal courts have consistently held that scholarships are “no-strings-attached” educational grants with no requirement that the recipient perform substantial services in exchange for the payment.
Amounts paid to or on behalf of a student to support studies or research that primarily further the student’s education or training generally do not represent compensation for services. Requiring periodic progress reports or receiving incidental benefits from the student’s work does not, by itself, make the payment taxable compensation.
Scholarships are generally not subject to tax withholding; however, they may be reportable to the student and the IRS on Form 1098-T.
Qualified Scholarships
A qualified scholarship may be excluded from taxable income under Internal Revenue Code (IRC) Section 117.
Qualified tuition and related expenses include:
- Tuition and mandatory fees
- Books
- Supplies
- Equipment required for enrollment or attendance in a course of instruction
To qualify for tax-free treatment, these expenses must be required of all students enrolled in the course.
Non-Qualified Education Expenses
The following expenses are generally considered taxable and are not qualified educational expenses:
- Room and board
- Travel expenses
- Optional fees
- Personal expenses
Degree Candidate Requirement
A scholarship is excluded from taxable income only if the recipient is a candidate for a degree at an eligible educational institution.
Amounts paid to non-degree candidates are generally considered taxable scholarships or fellowships, even if used for otherwise qualified educational expenses. Pursuant to IRS Notice 87-31, taxable scholarships paid to non-degree candidates are generally not subject to withholding or IRS reporting requirements.
Reporting
Scholarships must be funded using allowable funding sources in accordance with University and sponsor requirements.
For a U.S. Citizen, Resident Alien, and Resident Alien for U.S. tax purposes:
Generally reportable by the University on Form 1098-T, not on Form 1099-MISC.
For a Nonresident Alien for tax purposes:
Reported to the IRS on Form 1042-S.
If eligible for a tax treaty benefit: 0 percent tax withheld
If not eligible for a tax treaty benefit:
- And individual is present in the U.S. under an F-1 or J-1 visa status: 14 percent tax is withheld
- All other visa status: 30 percent tax withheld
Examples of Scholarships
- A degree-seeking student receives an educational grant to cover tuition, fees, books, or other enrollment-related expenses associated with the student’s program of study.
- Students participating in a student organization service-learning activity receive financial assistance to offset participation costs. The assistance is awarded selectively and applied to the students’ University accounts.
- Students participating in a faculty-led travel program receive financial assistance to help cover participation costs. The assistance is provided as a scholarship and applied to the students’ University accounts.
- A University department provides funding to reduce the cost of a faculty-led program equally for all participating students. Because the assistance reduces the overall program cost uniformly and is not awarded individually, it is not considered a scholarship or award to individual students and is not subject to student tax reporting.
Payment for services performed by students primarily for the benefit of the University is considered taxable compensation. Payment for services is treated as taxable income, which is subject to tax withholding and is reported on IRS Form W-2.
This includes payments made for teaching, research, and/or other activities performed for the benefit of the University.
This includes student employees, graduate assistants, and work study students.
Students who incur costs for approved activities that primarily benefit the University may be entitled to reimbursement of those expenses. As with University employees, this situation arises when a student purchases a service or good while acting as an “agent” of the of the University.
Reimbursement of University business expenses is not reportable as taxable income and is not subject to tax withholding.
All University policies and procedures apply to these reimbursements.
Examples of student reimbursements include the following:
- Student A is approved to travel to Washington, DC to represent Stockton University in a scholastic competition.
- Student B is approved to travel to a conference held in Memphis, TN to present a paper on behalf of the Department of Social Work.
- Student C is approved to purchase a toner cartridge for a University-owned printer that is located in his department's lab.
- Student D travels to Germany to perform research for the University, which happens to be the same topic related to her dissertation. The University would perform research on this topic regardless of the student performing research for her dissertation. The University is the primary beneficiary of this travel.
An honorarium is a payment that functions as a token of appreciation to an individual for participation in a special—and typically nonrecurring—activity at a university event for which payment is not required. This method of payment is usually made as a “thank you.”
Normally, an honorarium is given in conjunction with an academic activity. No honorariums should be paid to a university employee.
For a U.S. Citizen, Resident Alien, and Resident Alien for U.S. tax purposes:
- Use Natural Account 54130, Services Honoraria.
- Must provide SSN to Rutgers University before receiving payment.
- Reported to the IRS on the Form 1099-NEC Non-Employee Compensation form.
For a Nonresident Alien for tax purposes:
- Use Natural Account 54140, Services Honoraria NRA.
- If eligible for a tax treaty benefit: 0 percent tax withheld.
- If not eligible for a tax treaty benefit: 30 percent tax withheld.
- If service provided by a nonresident alien is performed outside the U.S., there is no tax consequence.
- Use Natural Account 54150, Services Honoraria NRA Working Abroad.
- A non-U.S. person performing service abroad should not be in the Glacier Tax Compliance Program.
Stockton University may provide payments or incentives to individuals participating in approved research studies, surveys, focus groups, interviews, or training activities. Participant payments must comply with University policy, sponsor requirements, and IRS regulations.
Tax Reporting
U.S. Citizens and Resident Aliens for U.S. Tax Purposes
Participant payments may be taxable and reportable to the IRS on Form 1099-MISC or Form 1099-NEC, when applicable.
Nonresident Aliens for U.S. Tax Purposes
Participant payments to nonresident aliens may be subject to federal tax withholding and reported on Form 1042-S.
- Eligible tax treaty benefit: reduced or 0% withholding may apply
- F-1 or J-1 status without treaty benefit: generally 14% withholding
- All other visa statuses without treaty benefit: generally 30% withholding
Anonymous Participant Payments
Certain research studies may allow anonymous participant payments when approved by the Institutional Review Board (IRB) and permitted under University policy.
Departments must maintain documentation supporting:
- Study purpose and IRB approval
- Date and amount of payments
- Number of participants paid
- Payment reconciliation records
Anonymous payments may limit available payment methods and IRS reporting.
Gift Cards and Cash Equivalents
Gift cards and prepaid cards provided to participants may be considered taxable income. Departments must maintain adequate distribution and reconciliation records.
Contact the Tax Department with any questions.
Email: tax@stockton.edu
